MEDIA DECODER; Comcast Said to Study Buying Part Of BSkyB

By AMY CHOZICK

Published: June 9, 2012

5:05 p.m. | Updated Comcast is exploring whether the British Sky Broadcasting Group, Britain's largest satellite broadcaster and a lucrative pay TV asset 39 percent owned by News Corporation, could become available for purchase, according to several people briefed on the company's strategic thinking.

Comcast's thinking about a possible deal is in the preliminary stages, and the company has not made a formal offer or even approached BSkyB or News Corporation about negotiations, said these people, who were not authorized to speak publicly about the company's strategy.

Michael J. Angelakis, Comcast's vice chairman and chief financial officer, denied that the company had any interest in acquiring BSkyB.''This is complete rubbish,'' he said in a telephone interview. ''It is total speculation and inaccurate.''

As News Corporation faces the fallout of the continuing phone-hacking scandal in Britain, its stake in BSkyB has come under question. A British regulatory panel is investigating whether Rupert Murdoch's media company is ''fit and proper'' to hold a broadcast license.

Last summer, News Corporation withdrew its $12 billion bid for the remaining stake in BSkyB, amid scrutiny related to the phone hacking carried out at by its News of the World tabloid. Since then, the chances of News Corporation reviving that bid have diminished.

These circumstances have prompted News Corporation to consider divesting its BSkyB stake at a premium and retreat from what once looked like a key part of the conglomerate's $50 billion portfolio, according to these people. News Corporation does not want to be forced to sell its BSkyB stake in a fire sale, if Ofcom, the British regulatory body reviewing the matter, were to deem the company unfit to hold the broadcast license, analysts have said.

''There's a big difference between exiting a position like that on your own terms versus being forced to exit a big position in a forced-exit situation,'' Todd Juenger, a media analyst at Sanford C. Bernstein & Company, said in an interview last month.

Others on Wall Street said it would be uncharacteristic of News Corporation to sell its BSkyB stake during the current scrutiny in Britain. ''On an emotional level, I find it hard to believe,'' said David Bank, a media analyst at RBC Capital Markets, adding, ''It would be a tacit admission that the British government is right.''

Acquiring BSkyB would make strategic sense for several United States media companies - including Comcast, DirecTV and Liberty Media - that want to expand their footprints in the international pay-TV business.

Another person close to Comcast, but not authorized to discuss potential deals publicly, cautioned that media bankers regularly pitch proposals.

''With the current News Corporation situation everyone in the media business has been approached about BSkyB,'' this person said, adding that Comcast is ''focused on its current businesses'' and has not initiated any BSkyB discussions.

Comcast, however, has been the company that is most actively approached by outside advisers about whether a BSkyB purchase would make sense, one of the people with knowledge of the BSkyB discussions said.

News Corporation and BSkyB declined to comment.

Comcast, a Philadelphia-based company, does not typically own minority stakes in foreign companies and if interested, would buy BSkyB outright, though these people cautioned that any exploration is extremely preliminary.

With a market capitalization of over $80 billion, Comcast has not shied away from big-ticket, complicated mergers in the past. In early 2011, Comcast won approval in Washington to acquire a 51 percent stake in NBCUniversal for $13.8 billion in cash and assets. Having reached near saturation in cable subscriptions in the United States, Comcast, the country's largest cable operator and Internet service provider, has looked overseas for growth opportunities.

In the quarter that ended March 31, Comcast had $2.21 billion in cash and cash equivalents on its balance sheet and operating cash flow of $4.69 billion.

For News Corporation, the sale of BSkyB would effectively end its reign as a major television force in Britain. At the same time, the multibillion-dollar sale would boost News Corporation's stock and cash flow and please investors who have called for it to divest its minority stakes in several overseas companies.

Last Friday, fresh revelations about a favorable relationship between the British culture minister, Jeremy Hunt, and News Corporation lobbyists became public. Mr. Hunt said he had been ''sympathetic'' to News Corporation's bid to take over BSkyB. He was later tasked with overseeing the regulatory aspects of the deal.

In April, one of Mr. Murdoch's sons, James Murdoch, resigned as chairman of BSkyB amid pressure related to his involvement in the phone hacking scandal at the company's British tabloids.

News Corporation's equity earnings from its BSkyB stake were $262 million in the quarter that ended March 31. Last summer, BSkyB said it had a pretax profit for 2010 to 2011 of $1.7 billion, up 16 percent from the previous year.

Mr. Juenger wrote in a May 18 report, using BSkyB's ticker symbol, BSY, ''We believe BSY stake is a poor use of capital and News Corp. should seek to exit - on their own terms and timing.'' He added, ''While they won't admit it, we believe News Corp. was always likely to eventually decide to sell its stake in BSkyB if it cannot acquire full control.''

BSkyB, meanwhile, has done its part to distance itself from News Corporation. ''I would emphasize that it's important to remember that Sky and News Corporation are separate companies,'' Jeremy Darroch, BSkyB's chief executive, told reporters last month.

He added, ''We believe that Sky's track record as a broadcaster is the most important factor in determining our fitness to hold a license.''

This is a more complete version of the story than the one that appeared in print.

PHOTO: British Sky Broadcasting is 39 percent owned by News Corporation and is the largest satellite broadcaster in Britain. (PHOTOGRAPH BY CHRIS RATCLIFFE/BLOOMBERG NEWS) (B2)